Break-Even Analysis Is Used in Situations When

question 11

Multiple Choice

Break-even analysis is used in situations when:

• A)the decision-maker is a non-profit organisation.
• B)the decision-maker is concerned with questions such as 'What will be the net present value if sales are 20% lower than expected?'
• C)the project under consideration is an item that does not generate positive cash flows.
• D)the decision-maker is concerned with questions such as 'How low can sales go before the project starts losing money?'

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Definitions:

Put Option

A financial contract giving the holder the right to sell an asset at a specified price within a specific time.

Cash Flow Hedge

A cash flow hedge is a type of hedge that is used to manage exposure to variability in cash flows, particularly those related to forecasted transactions that could affect profit or loss.

Option Expense

The cost associated with granting stock options to employees or executives, which companies must expense in their financial statements.

Fair Value Hedge

A hedging strategy aimed at protecting against the risk of changes in the fair value of an asset, liability, or an identified portion of such, that is attributable to a particular risk.